Virtusa completes acquisition of majority interest in Polaris for $ 166 m

Virtusa Corporation on Friday announced that its India subsidiary, Virtusa Consulting Services Ltd., has acquired all of the outstanding shares of Polaris Consulting & Services, Ltd., held by Arun Jain, Founder and Chairman of Polaris, Orbitech Ltd., and certain other minority stockholders, representing an aggregate of approximately 51.7% of the fully diluted outstanding shares of Polaris for an average of $3.12 per share (INR 213.883per share), for an aggregate purchase consideration of $165.89 million (INR 11,364million).

Jitin Goyal will remain CEO of Polaris, and was appointed President, BFS, to lead Virtusa’s and Polaris’ business operations serving the banking and financial services verticals.  Raj Rajgopal, President of Virtusa,was appointed President, ETS, and will lead Virtusa’s and Polaris’ operations serving the insurance, communications and technology, and media, information & other verticals. In their respective roles, Goyal and Rajgopal will be responsible for executing Virtusa’s and Polaris’ growth strategies, which will include driving over $100 million of cumulative revenue synergies over the next three fiscal years from the business combination.   

Virtusa’s Chairman and CEO Kris Canekeratne stated: “We are extremely pleased to close phase one of the Polaris transaction and we look forward to completing the mandatory open offer to Polaris’ public shareholders.  Combined, Virtusa and Polaris create a robust platform and a unique and compelling value proposition.  We are enthusiastic about providing end-to-end solutions and services in banking and financial services, greatly expanding our addressable market and positioning us well to pursue larger consulting and outsourcing opportunities.”

“I would also like to congratulate Jitin and Raj on their respective appointments. Their unparalleled industry expertise, leadership skills, and proven track record of driving business growth will be invaluable as we embark on our next phase of expansion,” he added.

Beginning on 11 March, Virtusa will commence an unconditional mandatory open offer to Polaris’ public shareholders to purchase up to an additional 26% (3,4) of the outstanding shares of Polaris. The aggregate price for the shares to be purchased in such offer, assuming full tender and the offer price remaining unchanged, is estimated at approximately $86.1 million (INR 5,898million)(2). Upon closing of the mandatory offer period on 28 March, and assuming full tender, and settlement of the tendered shares by 12 April, Virtusa will own a 74.99%(4) majority interest in Polaris. 

Highlights of the Virtusa and Polaris combination

• The combination of Virtusa and Polaris creates a leading global provider of IT services and solutions to BFS, bringing together Virtusa’s deep domain expertise in consumer and retail banking with Polaris’ proven strength in corporate and investment banking.
• Virtusa expects to realise over $100 million of cumulative revenue synergies over the next three fiscal years.
• Polaris is expected to be approximately ($0.11) dilutive to Virtusa’s non-GAAP EPS in fiscal year 2016, slightly dilutive in fiscal year 2017, and accretive in fiscal year 2018 and beyond.
• Upon the closing, Citigroup Technology Group, Inc. (Citi) has designated Virtusa and Polaris as preferred vendors for Global Technology Resource Strategy (GTRS) for the provision of IT services to Citi on an enterprise-wide basis.
• Virtusa and Polaris combined have approximately 19,000

In support of the transaction, on February 25, 2016, Virtusa entered into a credit agreement with a syndicated bank group jointly lead by JPMC and Bank of America Merrill Lynch – which replaces Virtusa’s existing $25.0 million credit agreement and provides for a $100.0 million revolving credit facility and a $200.0 million delayed-draw term loan. 

Virtusa drew down in full the $200.0 million term loan to fund the transaction. Interest under these facilities accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortisation, and stock compensation expense (EBITDA). The company intends to enter into an interest rate swap agreement to minimise interest rate exposure. 

The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending 25 February 2021.